Boston Beer teams up with Magic Hat co-founder to brew some new magic

Alan Newman thought he was leaving the beer business for good when Magic Hat Brewing Co., the company he co-founded 18 years ago, was sold.

But then Boston Beer Co. chairman Jim Koch called with an offer that was too good to refuse.

The craft beer industry, it turns out, isn’t an easy one to escape. Newman is now running Boston Beer’s new subsidiary, Alchemy & Science. Koch has given Newman a blank slate to generate ideas – and access to Boston Beer’s resources and staff – to make investments in the craft beer industry.

Newman’s first task: acquire Angel City Brewing in Los Angeles and oversee the completion of its new brewery this spring. It’s not really clear yet what kind of other projects we’ll see down the road – a journey with an open-ended nature that Newman seems to relish.

Koch’s focus remains on his company’s flagship Samuel Adams brand, which had morphed into more than 50 styles of beer by 2011, essentially tripling what the company offered a decade ago. With the creation last fall of Alchemy & Science, Koch has a new place for the experiments to continue under new brand names – and a new research chief to oversee the new lab.

After Magic Hat, Newman worked with former colleague Stacey Steinmetz to seek a new outlet for their energy and creativity. They considered a number of different business ideas, and even came close to buying a potato chip company. The self-confessed business junkie says he picked the name Alchemy & Science because a successful business requires plenty of intellectual planning, and, at some point, magic needs to take over.

The call from Koch that turned Alchemy & Science from an idea into a business was nearly two decades in the making. Newman says their friendship dates back to when he started Magic Hat and sought advice from the Boston Beer guru. When he left a visit with Koch at the company’s Jamaica Plain brewery, Koch made sure to tell Newman not to hesitate to call if he had any questions. Newman says he took Koch up on that offer many times over the years.

While Boston Beer has long been the biggest craft brewer in the country, Vermont-based Magic Hat soon grew to be a big player in its own right. It was in the top 10 by the time it was sold in 2010.

Koch believed Newman still had more to contribute to the industry, so he called him last August to start discussions about this partnership, a venture aimed at finding and investing in opportunities that increase the public’s overall appetite for craft beer. That could mean buying a brewery – as Boston Beer did in the Angel City deal – or it could mean creating a concept from scratch. Newman says he’s pursuing a few other projects but can only discuss the L.A. brewery for now.

Alchemy & Science will be based in Burlington, Vt., and Newman says he expects its workforce will be up to nearly a dozen employees, including the Angel City staff, within the next two months.

During a Feb. 22 conference call, Boston Beer executives told analysts that they expect the Alchemy & Science venture to rack up $3 million to $5 million in expenses during 2012. They don’t expect it to turn a profit this year, and it wasn’t a factor in their revenue projections for Boston Beer.

You could almost hear some of the analysts scratching their heads, trying to figure out what this new subsidiary was all about. It’s difficult for Boston Beer to pinpoint, at this time, how much revenue Angel City will bring until the new brewery opens. And if Koch and CEO Martin Roper were familiar with other Alchemy & Science ventures, they didn’t let on during the call.

Morningstar analyst Tom Mullarkey, for one, sees the concept as a smart move. Mullarkey says the craft beer business is still growing at a fast clip in this country. He says Alchemy & Science represents a small investment that could lead to a big payoff if one of the ideas generated there could be rolled out on a grand scale using Boston Beer’s formidable distribution system. He sees Alchemy & Science as a way for Koch and his team to keep their fingers on the pulse of the craft beer industry, to recognize the next big thing, while staying focused on retaining their market leadership with Sam Adams.

For now, Koch isn’t counting on Alchemy & Science being anything more than an incubator, an experiment. He’s not ready to put pressure on the venture to be a financial success. Koch says the subsidiary could invest in what he calls “interesting adventures in craft brewing” and use Boston Beer’s brewing and business expertise to grow them in a way that their current owners can’t.

Will this new subsidiary become a next big thing in craft brewing? Koch hopes so. But it’s by no means a sure bet.

Alchemy. Science. Newman knows as much as anyone that this venture, like any new business, will need at least a little bit of both to succeed.